Can restaurants, delivery companies make money off on-demand meals?

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Aug 13, 2016 at 12:01 AMSep 25, 2018 at 10:16 AM

A business is only as strong as its supply chain, which is one of the reasons that the restaurant delivery business is so tricky.

In order for restaurants to take on delivery themselves, they would have to hire and train drivers and coordinate the deliveries, a headache that most don’t want to deal with. To serve that many more customers inside their walls, restaurants would have to expand the dining space or turn the tables to new guests more frequently.

When GrubHub started, it simply offered information on which area restaurants delivered, and a recent Forbes article credited GrubHub’s profits — $38 million in net income on $362 in revenue a year — on the fact that it hadn’t tried to build a delivery system of its own. After a short attempt to do so, GrubHub instead started buying up regional companies that already had them in place.

RELATED: How one Austin company revolutionized how we get food delivered

Now, the company handles more than $2.4 billion in food orders in more than two dozen markets, the highest in the industry. To shore up that supply chain, GrubHub has even experimented with opening restaurant-like commissary kitchens, complete with a public-facing brand and logo that makes it feel like customers are ordering from traditional restaurants.

Under new ownership, Eat Out In continues to operate under its original name in Austin, Houston and San Antonio with more than twice the number of restaurant options that Jackie Davies offered when she ran the company. Its primary competitors, which in addition to UberEats and Amazon include Postmates, Eat24, BiteSquad, Dine on Demand, Mr. Delivery and the Austin-based Favor, have raised hundreds of millions to take even more of the quickly growing market. Two others, DoorDash and Caviar, are serious players in the space but have not yet opened in Central Texas.

The GrubHub network might just be vast enough to withstand the blow that is sure to come when UberEats and Amazon, both diversified delivery companies flush with cash, expand their restaurant delivery to even more cities.

So where are those dining dollars coming from? By some accounts, the grocery industry. According to the National Restaurant Association, Americans spent more money at restaurants than supermarkets for the first time last year.

Anna Tauzin, senior marketing manager of innovation and entrepreneurial services for the National Restaurant Association, doesn’t directly link the two, but she says it’s possible that increased delivery is what tipped the scale.

"As younger generations have grown up, we’ve grown accustomed to having things when they want them. There’s not as much time to prepare food at home, so delivery is a natural option," Tauzin says.

Many restaurant owners — especially those in the quick service, family dining or fast casual space — have responded to that lifestyle shift by embracing delivery, rather than viewing it as an annoyance to the kitchen or an insult that the diner doesn’t want to eat in their space. "They can make extra money and they can increase profits per square foot," Tauzin says.

Restaurants, skittish about losing control over their food and brand, need to be open to what delivery can do for business, but the delivery companies need to work in partnership with the restaurants to ensure the best experience for the diner.

"We’re not hearing from restaurant members that the individual orders are getting to be too much; they are grateful for the additional orders," she says. Those might not be the big, lucrative catering orders, but they are orders nonetheless.

Ronald Cheng, who started Chinatown in Austin in 1983, says that for deliveries today, companies such as UberEats make it easier than ever for restaurant to participate. "More and more companies are coming in, and they are just so efficient," he says.

UberEats announced last week that it would continue to operate in Austin, even though the Uber ride-hailing service ceased after Prop 1 failed to pass.

Delivery is ramping up so much in certain types of restaurants and parts of the country that restaurants are adding kitchen space to handle the volume. Before long, some restaurants might open standalone kitchens for takeout or delivery orders.

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